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Economics of advertising

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Advertising-Economics

If advertising is an essential part of the consumer society, its economic weight and its effectiveness are difficult to assess.

Economic weight

In 2006, in a report entitled 2006-2010 Forecast for the entertainment industry and media, PricewaterhouseCoopers estimated global ad spending to 385 billion dollars. The accounting firm estimates that $500 billion US’s weight for 2010 In 2000, strong year due to the advent of new technology products, investments made in the communication world by companies had surpassed the 300 billion dollars. That is, we see a large increase in area with an average annual growth rate of 6.5%.

This economic sector is sensitive to changes in economic conditions. Advertisers, in times of economic recession, reduce communication costs, the easiest to reduce. Instead, by phase of economic growth, the idea that it should gain market share “no matter the costs” determine the industry to grow higher than the rest of the economy.

In 2006, the allocation of advertising dollars given in order of importance, 43% for the press (30% for newspapers and 13% for magazines), 38% for TV, 8% for radio, 4% for internet, less than 1% for film and 6% for display (non-media). Media advertising now accounts for 1% of global GDP. In turn, direct marketing and promotion operations weigh 120 billion dollars.

Impact

The advertising is accused to promote the concentration of markets and distort competition. In 1967, the British government requires market-leading detergent manufacturers to sell a generic product without advertising support or promotion, lower prices 20% to the market price (estimate of the impact of government in terms of marketing costs ). The experiment was inconclusive.

We can argue, to defend the thesis that the advertising distort competition, the fact that purchases of media spaces are highly regressive: the unit cost is much less when you buy a thousand spots. This benefits the giants (agribusiness, for example, at the expense of small farmers). In cons-example of this argument, if the advertisement promotes concentration, it results that the sectors of the economy that have made the most of advertising should be highly oligopolistic and the sectors banned from advertising should be highly  fragmented. The economy is full of exceptions. In addition, market shares tend to be more volatile (and therefore more active competition) in a sector that is more publicity.xceptions. De plus, les parts de marché ont tendance à être plus instables (donc la concurrence plus active) dans un secteur qui fait plus de publicité.

Efficiency

How to measure the effectiveness of advertising? A quip, commonly carried in the profession, said, “Half of my advertising dollars are spent in vain. The problem is I do not know which one.“Bill Bernbach, for its part, says without false modesty:”Do not measure opinion, make it!“. Between these two approaches, the question is of evaluating the effectiveness of advertising, and more specifically on the demand. Stimulates id the competition? Does it favors the concentration of demand on a small number of brands?

Measuring the effectiveness of a campaign is almost impossible for the advertiser. Ideally, the advertising investment is less than the increase in sales. But we can not isolate the effect – variable and diluted over time – from advertising in all the factors that influence consumer behavior. Should we sacrificing the measure of impact? There are multivariate statistical methods using regression, analysis of variance, etc. It is also possible to use the method of the test market:l launching a campaign within part of the territory only, and compare its impact on sales to the sector without campaign. This method is costly in time and has the disadvantage of alerting the competition.

If the effect of a campaign for the sale of a given product is difficult, we know better measure the overall perception of the brand by measuring unaided awareness (percentage of people mentioning the brand in a given competitive environment) especially top of mind, that is to say, the first brand mentioned, assessing aided awareness (brand is cited as known in a given list?). To measure the impact of a campaign, a pollster may request, through several spots where the names of advertisers are masked correctly, to identify the brand and product.

Advertising is far from the omnipotence that he is sometimes credited, as evidenced by the repeated failures of products launched with considerable publicity efforts. Witnessed the launch of the Ford Edsel, the spectacular failures of products such as Zen cigarette of Seita, Mr Pibb soda by Coca-Cola or detergent Ala. However, recent scientific research shows that advertising is not that people are aware. The commercials will leave marks in the “unconscious” memory (called “implicit” memory). But the efficiency measures currently used by advertising agencies and advertisers measure only aware effects, probably underestimating the effectiveness of advertising.

Translated from Wikipedia

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